When Is an Audit or Review Required or Recommended? - Arizona

When Is an Audit or Review Required or Recommended? - Arizona

Arizona State Law - Requirements

Arizona Revised Statutes:
Chapter 9 - Condominiums
ARS 33-1243 (J)
Unless any provision in the condominium documents requires an annual audit by a certified public accountant, the board of directors shall provide for an annual financial audit, review or compilation of the association. The audit, review or compilation shall be completed no later than 180 days after the end of the association's fiscal year and shall be made available on request to the unit owners within 30 days after its completion.

Chapter 16- Planned Communities
ARS 33-1810
Unless any provision in the planned community documents requires an annual audit by a certified public accountant, the board of directors shall provide for an annual financial audit, review or compilation of the association. The audit, review or compilation shall be completed no later than 180 days after the end of the association's fiscal year and shall be made available upon request to the members within 30 days after its completion.

Recommendations:

Our firm has identified ten circumstances where we strongly suggest that a Review or Audit be performed. They are as follows:

  1. When large amounts of money are received for unusual circumstances. Two examples are construction defect settlements or large insurance proceeds.
  2. When there is unusual replacement fund/reserve activity. This may be when there are large reserve projects, when the Association is severely underfunded, or if the Association is not meeting budgeted expectations.
  3. When there is a change in management companies. (This is not an absolute, but it seems to be a good time to ensure that the transition between the management companies results in the correct balances being carried over and properly set up on the new books.)
  4. When there is little or no internal control. An example of this would be when the Association is self-managed, and the treasurer writes the checks, signs the checks and prepares the bank reconciliations.
  5. When the board has not been receiving financial statements on at least a quarterly basis. This is especially true when there is no standard accounting system in place.
  6. When there is suspected fraud or embezzlement. (Please tell your CPA of your suspicions before the engagement begins! Possibly, the CPA will refer you to a Forensic Accountant rather than the standard GAAP/GAAS audit.)
  7. When there is a lot of political infighting among the board members or there is a transition from one board to another which is not pleasant, such as the case of a recall.
  8. When the developer turns over control of the Association to the homeowners. (Even when not required by the state law.)
  9. When the Association is having financial difficulties. It may seem strange that the Association should spend more money when it is losing money. But, it may be that the Association needs a professional to spend some extra time on the books to ensure that everything is being properly recorded. When an Association is in financial trouble is when they need help the most.
  10. Associations with over $500,000 in annual assessments.